Muni Bond ETFs on a Roll as Yields Hit Record Lows
January 27th 2012 at 8:11am by Tom Lydon
Municipal bond exchange traded funds are spiking as rates drop to record lows, prompting worries this corner of the fixed-income market is getting ahead of itself.
“The municipal bond market has been on a seven-week march to all-time low rates (yields),” says James Colby, an ETF portfolio manager at Van Eck. “Given the voracious appetite that investors have had for munis, I would have expected that the natural order would be for the market to take a pause — even to back-up a bit as investors reassess relative value. Traders have begun to refer to bonds as trading at nosebleed prices, which suggests a market moving too high, too fast.”
Van Eck oversees several muni bond ETFs, including Market Vectors Long Municipal Index (NYSEArca: MLN).
Muni bond prices are rising after the Fed pledged to hold interest rates until late 2014. [Muni Bond ETFs Enjoy Big Rally]
“Cash is still flowing into open-end mutual funds, and the forward calendar of new issues coming to market does not yet satisfy the reinvestment demand lurking in the shadows,” Colby writes in a commentary on muni bonds. “Despite these nosebleed prices, it appears that investors continue to view munis as a relative value play, given their high level of creditworthiness.”
Meredith Whitney’s famous prediction on “60 Minutes” of massive defaults in the muni bond market hasn’t panned out.
Low muni bond supply and the Fed’s decision to keep interest rates low are supporting the market, according to The Wall Street Journal.
Other muni bond ETFs include:
- PIMCO Intermediate Municipal Bond Strategy Fund (NYSEArca: MUNI)
- SPDR Barclays Capital Short Term Municipal Bond ETF (NYSEArca: SHM)
- SPDR Barclays Capital Municipal BondETF (NYSEArca: TFI)
- Powershares Insured National Municipal Bond Portfolio ETF (NYSEArca: PZA)
- iShares S&P Short Term National AMT-Free Municipal Bond ETF (NYSEArca: SUB)
iShares S&P National AMT-Free Municipal Bond Fund
For more information on munis, visit our municipal bonds category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.